Muted applause from the market yesterday at Woodside Petroleum’s (WPL) confirmation that it was not going to be up for $2.5 billion or more to buy into the huge Leviathan gas project offshore Israel in the Eastern Mediterranean.
The company’s shares sank 1.8%, then recovered to spend the rest of the day in positive territory and closed up 0.7% (or 35c) at $40.23, on hopes of a further lift in dividends.
The news was announced 24 hours before the company holds an investor briefing in Sydney later today.
Although Woodside’s departure from the deal has looked increasingly likely in the past month or so, it seems the final confirmation came as a relief to investors who have been appreciating the company’s spending and cost cuts in the past 18 months and the consequent rise in dividends.
Woodside Petroleum told the market it had failed to reach an acceptable outcome after almost 18 months of negotiations. Talks have been going on since the end of 2012.
WPL 1Y – Market quietly cheers Woodside’s Israel pullout
Chief executive Peter Coleman told last month’s AGM in Perth that changes in the development plan for the project meant the investment may no longer be attractive.
In a statement released yesterday Woodside said it had advised the participants in the Leviathan Joint Venture that it has elected to terminate the memorandum of understanding agreed by the parties in February 2014.
"Negotiations between the parties failed to reach a commercially acceptable outcome that would have allowed fully-termed agreements to be executed.
"Woodside had been in discussions with Noble Energy Mediterranean Ltd, Delek Drilling LP, Avner Oil Exploration LP and Ratio Oil Exploration (1992) LP to acquire a 25% participating interest in each of the 349/Rachel and 350/Amit petroleum licences located offshore in Israeli waters,” the company said.
Mr Coleman said in the statement this was a difficult decision and one that was not taken lightly.
"All parties have worked very hard to secure an outcome which would be commercially acceptable, but after many months of negotiations it is time to acknowledge we will not get there under the current proposal,” Mr Coleman said.
"While Woodside’s commitment to growth is strong, even stronger is our commitment to making disciplined investment decisions" he added.
When Woodside first announced the proposed investment in 2012, Mr Coleman referred to a potential world-scale, two-train onshore LNG plant based on gas from the 19 trillion cubic feet Leviathan field, which is one of the largest discovered anywhere in the world in recent years.
He said LNG exports would follow an initial domestic gas project within Israel, and would be directed to high-priced markets in Asia.
But that was not the view of some of the other partners such as Noble Energy, the small US oil group.
It has pushed plans to export gas by pipeline from the field to neighbouring countries including Jordan, Egypt and Turkey, and LNG exports would be delayed until a third phase and would only happen from a floating gas platform (similar to the one Shell is building for the Prelude field off the NW coast of WA).
At the same time, a domestic political dispute erupted over the gas from Leviathan and another large gas discovery, with a big push by some in Israel to retain gas for the country’s use and make it energy-independent.
The eventual plan was to keep some gas, and allow some exports.
As well Woodside has indicated it found it hard to get clarity from the Israeli government about the tax treatment for the project.
It is the second big project Woodside has abandoned in the past year.
The first was the onshore LNG project at James Price Point on the Kimberley coast for the huge Browse gas deposits.
That had environmental and political problems in WA as well. That is now being reworked to base it on a floating project.
